I wrote an article some months back about how I was planning to utilize my warchest strategy should the market trend lower. You can view them here. Since then, the market has gone down at one point to less than 2800 and many people were scratching their heads when would be a good time to enter.
Timing the market may look easy to the common naysayers. Some would look for macro events to take place while others are simply looking for directions to take place. Either way, it almost seems that one can predict the event that things would get cheaper before they decide to nibble on the stocks they were eyeing.
In the article I wrote previously, I mentioned that cash represents a call option for investors to purchase companies at a cheaper valuation when Mr. Market misprices them occasionally. Many people shun the value of cash at face value as they tend to erode over time due to inflation so they aren’t willing to hold cash for a long period of time but I look at it in a balance. Sure, it isn’t cool to hold cold hard physical cash but who wouldn’t want to pounce on the opportunity given when it is time to do so.
On the other side, I also wanted to talk about opportunity loss. Missing a good opportunity for an entry is to me as bad as getting an entry at the highest. This is probably the reason why scaling the purchase and understanding the company’s valuation becomes all the more important because good companies will eventually rebound back in value, even though they may go lower in the shorter term due to market weakness.
I personally do not advocate myself timing and entering the market at the bottom as part of my strategy and I probably do not have clue to where is the bottom anyway, but what I do know is that over the longer term, the stocks I am holding will be one which will rise in value and support my lifestyle till the day I leave this earth. At least, I have to make sure that conviction stays true. For instance, when the market went lower at below 2800, I have used quite a portion of my warchest to take opportunity of stocks that I think has value proposition. If it goes down further, then I would activate my next batches of purchase and this will continue. The strategy is clear, so the fear of missing out is exacerbated.
There are many other bloggers who are advocating different strategy that fits their own profile. Some like consistent dividend paying companies while others have a lower threshold before they start buying in. Regardless, I think the common theme is to have a strategy in place so that you won’t panic when the real war begins. When that happens, you are already prepared and the battle is won halfway.